Chapter 11 Bankruptcy
Chapter 11 Bankruptcy law is primarily designed for businesses, although in some cases individuals may qualify. The main purpose of Chapter 11 Bankruptcy is to allow the business owner to retain his company and continue doing business, while also resolving his debt. If the business owner wishes to close down, you would NOT seek to file a Chapter 11.
There are two usual methods. One method is for the business owner and his creditors to agree upon terms for a reorganization plan. In some cases this can include selling some of the company’s assets to cover debt. If the business owner is conscientious and the creditors are cooperative, this can lead to resolving the debt with as little difficulty as possible. Another method is for the creditors to be granted equity in the company itself. There are both pros and cons to this method, with much depending upon how seriously your creditors take their stake in your company and how willing you are to accept their place as shareholders in your business.
One positive point in the reorganization method is that it affords you the chance to get your debts settled while retaining full ownership and authority in your business. However, if you are considering this method you should keep in mind that your creditors may not agree to it. As Chapter 11 Bankruptcy law allows your creditors to have a say in the proceedings, you should be prepared for this possibility.
You may be considering the option of granting equity in your company to your creditors. This is also a decision that you should not enter into lightly, nor attempt without qualified advice. While the theory is that if a creditor has his own stake in a business he is most likely to want the business to remain operating at its best, it would be a good idea to know whether your creditors are knowledgeable enough about your business so as to not make any shareholders’ decisions that could be damaging to the company.
While all forms of bankruptcy are serious, Chapter 11 Bankruptcy law can pose a real risk to your business if you do not think the matter through very clearly before making a decision. The professional with whom you discuss the matter can help you to make the decision that is in the best interests of your company. This will result in a much lesser risk to your business in general, as well as the best course of action in dealing with your debt.